On July 1,20X8,Pair Logic Corporation acquires 75 percent of Systems Inc.common stock for its underlying book value.At the time of acquisition,the fair value of the noncontrolling interest is equal to its proportionate share of book value of Systems.On January 1,20X8 Systems reported common stock of $100,000 and retained earnings of $130,000.For the year 20X8,Systems reports the following items:
Pair Logic uses the equity method in accounting for this investment.
-Based on the preceding information,what is the fair value of the noncontrolling interest at the time of acquisition?
A)$47,813
B)$57,500
C)$60,000
D)$45,000

Question

On July 1,20X8,Pair Logic Corporation acquires 75 percent of Systems Inc.common stock for its underlying book value.At the time of acquisition,the fair value of the noncontrolling interest is equal to its proportionate share of book value of Systems.On January 1,20X8 Systems reported common stock of $100,000 and retained earnings of $130,000.For the year 20X8,Systems reports the following items:
  Pair Logic uses the equity method in accounting for this investment.
-Based on the preceding information,what is the fair value of the noncontrolling interest at the time of acquisition?
A)$47,813 
B)$57,500 
C)$60,000 
D)$45,000

Quizplus · Accepted Answer

The fair value of the noncontrolling interest is equal to its proportionate share of the book value of Systems. Since Pair Logic acquired 75% of Systems, the noncontrolling interest represents 25% of Systems.

As of January 1, 20X8, the book value of Systems' common stock and retained earnings were $100,000 + $130,000 = $230,000.

Therefore, the fair value of the noncontrolling interest at the time of acquisition is:

Fair value of noncontrolling interest = 25% x $230,000 = $57,500

Therefore, the correct answer is (C) $60,000.

On July 1,20X8,Pair Logic Corporation Acquires 75 Percent of Systems